WEAKNESSES

Dependent on the agricultural sector (29% of GDP and 65% of employment) and weather conditions

Inadequate infrastructure, especially in terms of power generation and transport networks

Inconsistent industrial policy and business climate shortcomings

Religious tensions between Zanzibar and the mainland

RISK ASSESSMENT

Public investment drives growth

Growth is expected to remain vigorous in 2019, driven by public investment in infrastructure as part of the Five-Year National Development Plan. Projects to develop hydropower plants, extend the ports of Dar es Salaam and Mtwara, and construct a rail network, among others, are set to go ahead. The first phase of the railway network, a line linking Dar es Salaam to Morogoro, could even be completed before the end of 2019. In addition to activity in the construction sector, public investment should also support energy and transport. However, the ban on exports of unprocessed minerals, significant changes in mining legislation, a less favourable business environment compared with other East African countries and persistent delays in VAT returns are expected to weigh on the growth of private investment, particularly in the mining sector. The activity of the gold sector and, consequently, exports (gold being the main export product) will continue to suffer from the dispute between the authorities and Acacia Mining, a company that owns and operates three major mines in the country (Bulyanhulu, Buzwagi and Mara-Nord). Exports should nevertheless get a boost from increased tourism revenues, thanks in particular to the expansion of the national airline, Air Tanzania. Weather permitting, agricultural production, especially of export crops, should continue to increase. Private consumption is expected to benefit from relatively low inflation and the gradual recovery in credit growth.

Public spending causes the twin deficits to widen

The budget deficit is expected to continue to widen as capital investment spending on infrastructure increases. The 2018/19 budget forecasts a rise of almost 30% in this expenditure, while the increase in current expenditure, which represents more than 60% of total spending, should be more measured. On the revenue side, the government continues to prioritise expanding the tax base (domestic revenues represent only 15% of GDP), but progress remains slow so far. In particular, the authorities are considering stepping up the use of electronic collection systems to make headway in this area. Given the higher financing needs generated by infrastructure projects, the level of debt, and in particular its commercial component (about 20% of the total), is expected to continue to increase. However, the level of debt remains limited, and the risk of debt distress is contained.

The current account deficit, on which the trade balance will continue to weigh heavily, is expected to follow the same path as the budget deficit. With mining exports set to remain weak, the trade balance is expected to deteriorate, mainly reflecting the increase in imports of capital goods needed for infrastructure projects. The increase in services related to these projects should limit growth in the services surplus, despite the upward trend in tourism receipts. While official transfers have declined in recent years, the surplus in the balance of transfers will be sustained by remittances from expatriate workers. The income deficit will continue to be affected by corporate profit repatriation. While FDI plays a part in financing the current account deficit, bilateral and multilateral loans also remain necessary.

The “Bulldozer” is keeping a tight grip on power

Since the 2015 election of President John Magufuli from the Chama cha Mapinduzi (CCM) party, which has been in power since 1977, the government's authoritarian shift has been widely criticised. A growing number of journalists and members of the opposition have been arrested since President Magufuli took power. In 2018, laws introducing costly licenses for bloggers and banning the publication of statistics without the agreement of the statistics office added to the sense that the regime is tightening its grip on the freedom of expression. Nicknamed Tingatinga (“Bulldozer” in Swahili) since his time at the Ministry of Public Works between 2010 and 2015, the President seems to be seeing his popularity wane: according to a survey published in July 2018, his approval rating has fallen from 96% to 55% in the span of two years. President Magufuli's style and decisions also fuel divisions within the CCM. Nonetheless, by installing allies in key positions within the government and the party, the President is trying to protect himself against the emergence of threats within his own party. His governance style and investor-unfriendly policies are generating growing mistrust from international donors and hurting the perception of Tanzania’s business environment, which remains restrictive, coming 144 out of 190 countries in the Doing Business ranking.

Although rejected by the East African Court of Justice, the legal action brought by separatist activists on the island of Zanzibar in February 2018 to challenge the legality of the union with the country shows that separatist tendencies, or at least calls for more autonomy for the island, remain a source of tension.